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Financial Services Law Insights and Observations

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  • FinCEN, FDIC, and DOJ Announce Coordinated Anti-Money Laundering Enforcement Action and Settlement

    Financial Crimes

    On November 19, FinCEN and the FDIC announced that a state bank agreed to pay a $15 million civil money penalty to resolve the bank’s “history of noncompliance” with Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements, including recent allegations that the bank failed to implement an effective BSA/AML Compliance Program with reasonable internal controls. Specifically, the federal agencies alleged that the bank failed to adequately oversee third-party payment processor relationships and related products and services. The payment also resolves parallel civil claims by the DOJ that the bank violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) by originating withdrawal transactions on behalf of fraudulent merchants and causing money to be taken from the bank accounts of consumer victims. Concurrent with the federal action, the Delaware Office of State Bank Commissioner terminated the bank’s state charter.

    FDIC Anti-Money Laundering FinCEN Bank Secrecy Act DOJ False Claims Act / FIRREA

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  • Freddie Mac Announces Standard Deed-in-Lieu of Foreclosure

    Lending

    On November 15, Freddie Mac announced the new Freddie Mac Standard Deed-in-Lieu of Foreclosure (DIL), which is designed to serve as a workout option for borrowers for whom neither a home retention alternative to foreclosure nor a Freddie Mac Standard Short Sale is a workable solution. As described in Freddie Mac Bulletin 2012-27, effective for new DIL evaluations conducted on or after March 1, 2013, mortgage servicers will have delegated authority to approve a DIL that meets all Freddie Mac requirements for eligible borrowers who: (i) are 90 or more days delinquent, (ii) are current or less than 90 days delinquent but meet certain hardship criteria, or (iii) do not have an eligible hardship but were previously discharged from the debt obligations in a Chapter 7 bankruptcy. Also effective for new DIL evaluations conducted on or after March 1, 2013, Freddie Mac will offer mortgage servicers a $1,500 incentive for each DIL completed in accordance with Freddie Mac requirements, an increase from the current $275 incentive. Further, effective immediately, mortgage servicers have the authority to postpone any foreclosure sale for mortgages that are more than 12 months delinquent without obtaining Freddie Mac’s prior approval, provided the servicers have determined that doing so will protect Freddie Mac’s interests. The new Standard DIL was developed as part of the Servicing Alignment Initiative and completed under the direction of the Federal Housing Finance Agency.

    Foreclosure Mortgage Servicing

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  • Fannie Mae Announces Numerous Selling Policy Changes

    Lending

    Recently, Fannie Mae issued Selling Guide Announcement SEL-2012-13, which updates numerous selling requirements, all of which took effect immediately. The changes clarify (i) the rights of mortgage sellers during the loan pooling, certification, and acquisition processes, (ii) that acceptance of a redelivered mortgage loan is at the sole and absolute discretion of Fannie Mae, (iii) that a lender seeking to obtain a pool purchase contract must first be evaluated by Fannie Mae, and (iv) several Guide topics regarding Fannie Mae’s delayed financing policy. Other announced changes relate to, among other things (i) premium recapture, (ii) refinances that include the financing of real estate taxes, (iii) depository accounts, (iv) reserves, and (v) HUD-1 signature requirements.

    Mortgage Origination

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  • OCC Extends Compliance Date for Lending Limits Rule

    Consumer Finance

    On November 14, the OCC issued Bulletin 2012-36 to extend until April 1, 2013 the deadline for covered institutions to comply with the OCC’s lending limit rule. In June 2012 the OCC implemented a Dodd-Frank Act requirement that the OCC’s existing lending limit rule apply to certain credit exposures arising from derivative transactions and securities financing transactions, and originally allowed national banks and savings association until January 1, 2013 to comply.

    OCC

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  • State Law Update: Massachusetts Proposes Loan Servicing and Debt Collection Rules, Announces Public Hearing

    Lending

    Recently, the Massachusetts Division of Banks issued proposed amendments to the state’s rules governing the conduct of debt collectors and loan servicers. The proposed rule would (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, and communicate with borrowers in a timely manner under the new regulations. The amendments also would, amongst other changes, (i) amend the definition of "debt collector" to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging and (iv) expand the number of significant events of a debt collector and third party loan servicer which must be reported. The Division will host a public meeting about the proposed amendments on November 29, 2012, and will accept written comments through December 6, 2012.

    Mortgage Servicing Debt Collection

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  • CFPB Delays Implementation of Certain Mortgage Disclosure Requirements

    Lending

    On November 16, the CFPB announced that it is providing a temporary exemption from the  mortgage disclosure requirements in title XIV of the Dodd-Frank Act, including new disclosures regarding (i) cancellation of escrow accounts, (ii) a consumer’s liability for debt payment after foreclosure, and (iii) the creditor’s policy for accepting partial payment. The Federal Reserve Board proposed a rule in March 2011 to implement these requirements, but did not finalize the rule prior to July 21, 2011, when authority transferred to the CFPB.  Subsequently, the CFPB issued a proposal to integrate the TILA and RESPA disclosures and create new disclosure forms, which, as proposed, include many of the additional disclosures required by title XIV. In light of the overlap in the two rulemakings, and given that the title XIV requirements are required by statute to take effect on January 21, 2013, the CFPB effectively agreed to delay the compliance date pending completion of the TILA/RESPA disclosures proposal.

    CFPB TILA RESPA

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  • Federal Banking Regulators Launch Next Round of Stress Testing

    Consumer Finance

    On November 15, the Federal Reserve Board, the OCC, and the FDIC released the macroeconomic and financial market scenarios to be used in annual stress tests conducted by covered institutions pursuant to rules the regulators finalized last month. The economic scenarios are the same for each regulator and their covered institutions and include baseline, adverse, and severely adverse scenarios with variables that reflect, among other things, economic activity, unemployment, exchange rates, prices, incomes, and interest rates. The baseline scenario represents expectations of private-sector forecasters, while the adverse and severely adverse scenarios present hypothetical conditions designed to assess the strength and resilience of financial institutions, as well as their ability to continue to meet the credit needs of households and businesses in stressful economic and financial environments. The Federal Reserve Board also published a proposed policy statement and the OCC issued interim guidance to describe how those agencies will develop and distribute stress test scenarios in future years. Comments are due on the Federal Reserve Board policy statement by February 15, 2013, and on the OCC interim guidance within 60 days after publication in the Federal Register. Finally, last week, the Federal Reserve Board issued instructions and guidelines for covered institutions, including timelines for submissions. In a shift from prior years, the Federal Reserve Board will provide covered firms an opportunity to adjust planned capital distributions based on the stress test results before the Federal Reserve Board makes a final decision on their capital adequacy.

    Bank Compliance Capital Requirements

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  • DOJ and SEC Publish Long-Awaited FCPA Resource Guide

    Financial Crimes

    On November 14, the DOJ and the SEC released A Resource Guide to the Foreign Corrupt Practices Act. The long-awaited release comes almost a year to the day after Assistant Attorney General Lanny Breuer announced that the agencies would prepare an FCPA guidance document. Overall, the Resource Guide is a compilation of previously-issued guidance and litigation positions set forth by the DOJ and the SEC with regard to (i) who and what is covered by the FCPA’s anti-bribery and accounting provisions, (ii) the definition of a “foreign official”, (iii) what constitute proper and improper gifts, travel and entertainment expenses, (iv) facilitating payments, (v) how successor liability applies in the mergers and acquisitions context, and (vi) the different types of civil and criminal resolutions available in the FCPA context. The Guide also provides what the DOJ refers to as “the hallmarks of an effective corporate compliance program,” which may serve as a useful starting point for constructing, testing or revising an FCPA compliance program. At an industry conference this week, Assistant Attorney General Breuer explained that the Guide represents “the most comprehensive effort ever undertaken by either the Justice Department or the SEC to explain our approach to enforcing a particular statute.” BuckleySandler’s FCPA Practice plans to prepare an analysis and perspectives on the Resource Guide, drawing from recent trial and international compliance counseling experience.

    FCPA SEC DOJ

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  • SEC Reports Results of 2012 Enforcement and Whistleblower Programs

    Securities

    On November 14, the SEC reported the results of its enforcement program for the fiscal year ending September 30, 2012. During the year, the SEC filed 734 enforcement actions, which included an increasing number of actions focused on highly complex products, transactions, and practices. The SEC obtained orders requiring more than $3 billion in penalties and disgorgement, an 11% increase over the amount required in 2011. The SEC believes these metrics indicate “sustained high-level performance,” which it attributes to various reforms and innovations put in place over the past two years. The announcement highlights certain cases related to (i) the financial crisis, (ii) insider trading, (iii) investment advisers, (iv) broker-dealers, (v) FCPA, and (vi) municipal securities. On November 15, the SEC released its Annual Report on the Dodd-Frank Whistleblower Program. The annual report provides an overview of the program and notes that the SEC received 3,001 whistleblower tips from all 50 states and from 49 countries, including a tip that resulted in the first ever award under the program. There were 143 enforcement judgments and orders issued with potential for a whistleblower award. The most common complaints related to corporate disclosures and financials (18.2%), offering fraud (15.5%), and manipulation (15.2%).

    SEC Whistleblower Enforcement

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  • Federal District Court Finds Valid Agreement under ESIGN Based on Upload of Images in Accordance with Website Terms of Use

    Fintech

    On November 13, the United States District Court for the District of Maryland held that uploaded pictures to a website disclosing in its Terms of Use (TOU) that uploading images creates valid assignments of the rights to use those images were electronic signatures creating valid assignments. Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., No. 12-cv-00954 (D. Md. Nov. 13, 2012). The plaintiff had obtained a preliminary injunction against the defendant’s use of images that appeared on the plaintiff’s website, and the defendant appealed the injunction, arguing, inter alia, that no valid assignment of the images had occurred under Section 204(a) of the Copyright Act, which requires assignments to be in writing and signed by the assignor. Citing Section 101(a) of the Electronic Signature in Global and National Commerce Act (ESIGN Act), the court found that users’ acts of uploading images constituted electronic signatures sufficient to satisfy the requirements of the Copyright Act. The court thus denied the defendant’s motion to suspend the preliminary injunction.

    ESIGN Electronic Signatures

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